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Income Inequality

A friend asked me what I thought about an email from MoveOn featuring Robert Reich. He shares his views on “the worst trade deal you’ve never heard of—the Trans-Pacific Partnership (TPP).” Here are the first two paragraphs:

Dear fellow MoveOn member,

Recently, award-winning director Jake Kornbluth and I worked with MoveOn to put together a video about the worst trade deal you’ve never heard of—the Trans-Pacific Partnership (TPP), often called “NAFTA on steroids.”

If the TPP doesn’t sound familiar, that’s no accident: This giant story has been almost totally ignored by mainstream TV networks. (Interestingly, most TV networks are owned by corporations that would rake in profits if the deal goes through.)

Here’s what I thought, and I’d like to hear your thoughts. I expect I’ll get some blowback as I’ve made some sweeping generalizations, but it should be fun to discuss these issues and defend my beliefs about these important issues:

Hi,

Interesting you should ask. I like a lot of what Robert Reich says and thinks, but I am for free trade. I’m definitely a non-professional economist, but I do believe that most of the “rise of the rest”–the rise of more than a billion of people out of poverty as well as the expansion of the middle class in BRIC (Brazil, Russia, India, China) and other countries–is because people in developing countries can participate in the global economy more easily.

NAFTA was mostly good but bad for people with high-paying industrial jobs who were out-competed by lower wage folks in the developing world. …I don’t put American jobs ahead of Mexican or Chinese jobs; I’m a utilitarian in this regard: “most good for the most people.” Nearly all forms of protectionism are bad, IMO. Even though I’m married to a highly paid union worker, I think unions are mostly bad nowadays except in low-paying industries where workers need protection. Nowadays “Old Labor” protects the already entrenched (not the neediest). The rights that unions fought for in the 20th century have mostly been granted by law.

There’s undoubtedly a squeeze on the middle and working class right now in the US. I’m all for tax increases on wealthier folks (like me, frankly, though I’d like to believe I’m middle middle class) and public health insurance, and a decrease in all the gov’t welfare the RICH get in this country. (I have no qualms with helping the poor with gov’t money, but not the rich!) That said, much of the squeeze on the middle and working classes is because the world is more fair. We in the US had huge advantages, and globalization is taking those away…which is fair! All the more reason to invest in infrastructure and education right now!

Thanks for asking and I hope you have a good week (despite much snow).

Best,

Henry

As I said, I made some sweeping statements (as did Robert Reich), but I’m happy to dig into them. Do you agree or disagree about unions, free trade, “The Rise of the Rest,” etc.?

Income inequality, especially in the United States, has been a hot topic. It seemed to peak with the publication this year of Thomas Pinkatty’s Capital in the Twenty-First Century. The upshot? Income inequality has gotten worse.

But it’s not that simple. If you look at the big picture, inequality has decreased.

In the past 4o years world income distribution has transitioned from a bimodal distribution (two humps) to a normal distribution (a “bell curve”). In the 1973 histogram the high peak to the left represents the disproportionately high rates of world poverty. The peak to the right means that a disproportionately large amount of wealth was held by the wealthiest. Note the gap–the trough–between rich and poor. That’s a statistical representation of inequality.

In the past 40 years the distribution has migrated toward the center, which represents the meteoric “rise of the rest,” especially China and India, and the unprecedented expansion of the world middle class.

Income inequality in the United States is a problem. I’m for unpopular measures, like taxing inheritance much more because, with some exceptions such as family businesses, inheritance is a massive transition of unearned wealth from the privileged to the privileged. Let’s spend that money on education. Our government’s priorities are dominated by untouchables like Medicare and Social Security–investment in those who no longer earn money–instead of education and poverty reduction, which are real investments that pay off in years to come. I’m an optimist about most things, but I’m not optimistic that there will be a “future focus” shift where we choose invest in tomorrow’s workers and the poor instead of the retired.